January 21, 2014

The Union Tribune reports from California. “The stakes are high for San Diego’s housing market as the Federal Reserve tapers the national economy off super-low interest rates. Already, skyrocketing mortgage payments may have chased away enough demand to halt price growth. A typical new mortgage in San Diego County hit a modern low of $1,150 a month in February 2012, but by last month it had jumped nearly 47 percent to $1,695. Most of the increase came from home prices, which surged 38 percent in less than two years.

“Christopher Thornberg, founding partner of Beacon Economics in Los Angeles, predicts rising prices, even as he warns that the shortage poses a serious threat. ‘If you think about the California economy, and what is holding back growth right now, it has to do with a high number of people leaving the state because housing is unaffordable,’ he said.”

The Glendale News Press. “More homes went up for sale throughout the Glendale area last month compared to a year ago, according to the latest real estate report. However, fewer residences sold last month. More homes on the market didn’t drive prices down, though. The median price for a single-family home climbed to $727,000 last month, from $620,000 the year prior. Realtor Keith Sorem with Keller Williams Realty in Glendale, said it’s too early to tell if December’s stats are the beginning of a trend, pointing out that, like economics, directions in real estate are often about hindsight. ‘You only know what’s happening after it happens,’ he said.”

“He added, though, that what surprised him the most during the past several months is that as home prices increased throughout most of last year, inventory didn’t pick up as potential home sellers saw that they could get more money for their property.”

The Marin Independent Journal. “While the multiple-offer situation has eased in recent months, Josh Morgan is all too familiar with multiple bidding from other buyers competing for the same place. ‘A house went on the market in San Rafael for $1,300,000. We offered $1,425,000, but there were 10 other offers, and it went for $1,650,000,’ said Morgan, who is a banker.”

“One of the reasons for the low supply could be that ‘homeowners may simply be hoping that house prices will continue to rise, allowing them to recover lost equity,’ said John Krainer, a senior economist in the economic research department of the Federal Reserve Bank of San Francisco. ‘It is well-documented that house price changes are persistent,’ meaning that price rises are likely to be followed by more rises, Krainer said. Those homeowners who don’t have to sell right away ‘can potentially take advantage of this. They may want to wait and gamble that the increases will continue, allowing them to sell later at a higher price.’”

“A local agent echoed Krainer’s analysis. ‘I think people are just hoping if they wait a little bit longer that their home will be worth a little more,’ said Alva Falla, an agent with Coldwell Banker.”

The Mercury News. “Rents in large Bay Area apartment complexes flattened out in the last quarter of 2013, according to a report Wednesday from RealFacts, continuing a slowing trend from the previous quarter. Veronica Ramos, who directs a migrant worker project for the Santa Clara County School District, was shocked at the rents when she relocated to the South Bay from Stockton. She moved in with her parents in Campbell. This week, she finally landed a studio apartment in Campbell for $1,800 a month, with a hefty deposit. ‘How do you afford a studio apartment and save money for a house?’ she asked.”

The Press Democrat. “While sales slowed markedly in December, Sonoma County’s housing market in 2013 still posted its best year since 2006. For trends, some pointed to the lack of inventory as a force that will push prices higher this year. Others suggested the market doesn’t seem as frantic since mortgage rates started to rise last summer. ‘We didn’t see as many multiple offers in the last few months of the year,’ said Glenn Gephart, an owner of Century 21 Alliance in Santa Rosa.”

“Joanne Lumsden, an agent with Keller Williams in Santa Rosa, said she has a client who is getting ready to list a 2.5-acre property in southwest Santa Rosa. When she asked him when to put it on the market, he answered, ‘The day after the Super Bowl.’”

The Desert Sun. “After a slight uptick in the fall, Coachella Valley foreclosures ended 2013 with an 8.2 percent month-over-month decline in December, a new housing report shows. Michael Ricks, an REO director for Windermere, said more private investors are letting go of distressed properties, especially those that are completely gutted. The homes are typically vacant when he visits them, he said. ‘It’s the investors who are going to foreclosures,’ said Ricks, a Palm Springs agent who says he’s closed more than 250 foreclosures since the recession. ‘It’s typically not a homeowner anymore, and if it’s a homeowner, it’s a second home.’”

“Brandy Nelson, a broker for Red Top Realty in Palm Desert, said she recently listed properties in La Quinta and Palm Desert that are going through foreclosure. ‘Homeowners get overwhelmed,’ Nelson said. ‘They’re not sure what to do, so they walk away.’”

Funny thing is that academics tend to not think of themselves as working for ‘the government’ (at least that’s my perception of them). Not sure how those who work at the Fed (www dot federalreserve dot gov) view themselves.

(Comments wont nest below this level)

Comment by taxpayers

2014-01-21 07:50:14

as godlike
but 1 inch of snow proves them to be”non essential”

Comment by Whac-A-Bubble™

2014-01-21 07:54:59

“as godlike”

If you are feeling government envy, you should get yourself a PhD in economics at MIT (which are pretty easy to get, I hear), then get one of those cushy Princeton professor jobs (which are also pretty easy to get, I hear), then work yourself into the inner circle of the Federal Reserve.

Yes. In fact, John RINO McLame loves using Brookings Institute research to answer his constituents e-mail. In 2001 I wrote to Senator McSame’s office asking him to vote for GWB’s tax cuts. His office responded with copied clippings out of the Brookings Institute that was all about class warfare, the tax cuts are only for the rich.

Things are finally back where they belong on the permanently high plateau of prices that before required massive fraud by buyers and a wholesale lack of underwriting standards by banks. Prices can never go down again right.

With the return of no-doc stated income loans with no credit score check, as highlighted in yesterday’s bits bucket, I see no reason we cannot breach the highs of 2006, and reach a range incomprehensible- sort of like Chinese pricing.

‘According to a new report from the California Association of Realtors, home sales picked up 14.3 percent in Fresno County during the month despite a drop of 4.8 percent from the year before. For one thing, homes got a little more affordable. At $190,350, the county’s median home price was down 1.4 percent from $193,020 in November. That’s still up 20.8 percent from $157,620 in December 2012.’

‘Sales in Tulare County, on the other hand, saw a 9.5-percent drop in December from the month before and a 30.3-percent decline year-over-year. The county’s median home price fell slightly to $160,910 but rose 10.4 percent from $145,760 in December 2012.’

‘Madera County saw no change in sales during the month although numbers slipped 35.5 percent from the year before. In Kings County, sales fell 15.6 percent in December and 33.3 percent year-over-year.’

‘The county’s median home price also took a dive of 10.1 percent in the month, going from $171,670 to $154,280, which is still 5.7 percent ahead of $144,000 in December 2012.’

“While month-to-month price gain was higher than normal, home prices have been stabilizing in the second half of 2013, which is positive news for buyers who have been putting their home search on hold until prices leveled off,” said C.A.R. Vice President Leslie Appleton-Young. “California’s housing market experienced strong price growth throughout the year, with the median price surging 27.5 percent for the year as a whole from $319,300 in 2012 to $407,180 in 2013. But again, the increase in the media price can be partly attributed to the increase in sales of higher-priced properties, where tight inventory was less of a factory.”

This again:

‘buyers who have been putting their home search on hold until prices leveled off’

‘buyers who have been putting their home search on hold until prices leveled off’

I thought the used home sellers’ rallying cry was, “Buy now or get priced out forever.” If buyers knew that prices were going to level off at a permanently higher plateau, wouldn’t that make them want to act now rather than wait until prices ‘leveled off’?

Here’s a flippant theory: It seems as though the hordes of flippers bid up prices and snapped up homes at above asking price in many markets to the point where new waves of flipper-buyers had no more for-sale inventory to bid on and would-be end-user buyers were hopelessly priced out.

The curious part is why would-be sellers wouldn’t step up to increase inventory numbers as prices (reportedly) increased. Could it be the investors were so greedy and aggressive that the demand side of the market left the supply side as dessicated as the Mojave Desert?

(Comments wont nest below this level)

Comment by Rental Watch

2014-01-21 12:33:36

My parents are a “would be seller”. They have decided to hold their home off the market because they would have a hard time finding something to buy (too little inventory), and they are concerned that if they don’t simultaneously sell/buy (ie. they sell, rent for a while, then buy), prices would have moved too far up while they were renting.

So they remain living in their (debt free) house. There is no urgency to sell for them.

Unless you are moving out of the area, or made a decision to rent, and especially if you simply see your house as shelter, selling is problematic in a market where there is little supply, and prices moving up fast.

What breaks the logjam?

New development would help.
As would the buy-to-rent crowd deciding to sell their homes.

This has puzzled me too. I think the key might be in the statistic from yesterday that only 21% of San Franciscans could afford to buy their own home if they bought right now. Prices are so high that solvent homeowners actually can’t afford to move.

In many low-inventory areas, prices are now higher than at the peak of the bubble. So if a seller bought mid-bubble, say in 2005 with a 6% interest rate and a purchase price less than current prices, then refinanced into a historically low 3% interest rate in the last few years, how could they afford to move when right now a) prices are higher and b) mortgage rates are higher too?

I haven’t run the numbers, but it would be interesting to compare the monthly payment on a house bought mid-bubble and then refinanced with the monthly payment of the same house if it were bought today. I imagine there would be quite a difference, and this matters enormously to the ‘how-much-a-month?’ contingent (ie most end-user buyers).

Comment by Janet Felon

2014-01-21 13:54:17

The patient was dying from an overdose, the Fed stabilized them, then shot ‘em up with the largest dose of heroin the patient had ever experienced. I think I have an idea of what will happen to this particular patient- DEATH.

Comment by Rental Watch

2014-01-21 16:48:35

Janet,

Define “real seller”.

Aren’t we talking about listings of homes for sale?

People wanting to sell a home to move to another?

Comment by Rental Watch

2014-01-21 16:52:32

Ella…2 words, Prop 13. It allows people to live in their homes long after they should have been able to afford to live in them. This effectively restricts supply in a big way.

My great aunt lived in an the same house in Old Palo Alto since 1946 (when she paid $26k) until she died a few years ago. If there wasn’t Prop 13, she would have LONG since sold the house and moved elsewhere, because she couldn’t afford the neighborhood.

“Prop 13. It allows people to live in their homes long after they should have been able to afford to live in them.”

I’m not sure you meant that the way I took it, but people ’should’ be able to live in their homes their entire lives, assuming they bought an affordable house. It was property taxes that were out of control and increasing faster than they ’should’.

Comment by Rental Watch

2014-01-21 19:44:21

In lots of markets around the country, as property values rise, so do property taxes. The natural effect of this is that with every tick up in values a few more people can no longer afford the higher taxes, and sell the house to move. This is a natural counterbalance to rapidly rising prices in an area (it increases the people who sell and move).

In CA, there is no such natural effect due to Prop 13. There is no property tax induced counterbalance to higher and higher property values. In fact if the higher property values comes greater and greater amenities from people trying to cater to the new high-income residents (restaurants, etc.), then there is in fact the opposite of that counterbalance–a reason to stay, since the places they could afford to move (with lower property taxes) don’t have the same amenities as the high end neighborhood.

I’m not saying what is right or wrong (I also think that people shouldn’t be taxed out of their house), but the effect is very real when it comes to places like San Francisco, and that effect makes comments like “only 21% of the population could afford to buy the house they currently live in” more explainable.

One of those nasty unintended consequences of a law that was supposed to make housing more affordable…

‘Unlike the Bay Area, it’s a renter’s market in Stanislaus, according to Hilary Leffler, who launched the local chapter of the National Association of Residential Property Managers.’

‘There’s a good supply of rental units to choose from, and rents are comparatively low, according to Leffler, who is the tri-valley regional property manager for Liberty Property Management. Her Modesto-based company manages about 3,000 residential, commercial and industrial properties and homeowner associations from Pleasanton to Fresno.’

“I would tell people not to panic on interest rates; they aren’t going to be going up very much,” said Christopher Thornberg, founding partner of Beacon Economics in Los Angeles. “We have a world that is awash with capital, and not much demand for it for a variety of reasons.”

Thornberg has become an odd bird.

‘awash with capital, and not much demand for it’

I’d bet there’s a few Californians on food stamps that could use some if that washy capital, or need a job, or are paying half their income in rent in the bay area.

It amazes that in a world where billions of people exist in stone-age conditions, and for whom modest improvements of wealth would improve their standard of living dramatically, and there are untold trillions to be made from that demand, that growth is so slow.

85 (eighty five) people have more wealth than the poorest half (3.5 billion) of the world’s population. That strikes me as a distribution problem (now, don’t get me wrong - I’m not talking about simply taking from the rich and giving to the poor, or ignoring social institutions or corruption).

But I am saying that policies that push debt instead of wealth building is no way to improve people’s quality of life.

(Comments wont nest below this level)

Comment by Carl Morris

2014-01-21 22:23:14

But I am saying that policies that push debt instead of wealth building is no way to improve people’s quality of life.

Funny ’cause the IMF just released a finger-shaking report, warning the world that deflation is a serious danger right now. Their point was that governments need to borrow more money, so as to cause more inflation. Then they did this weird thing where they conflated inflation and borrowing with “economic growth”, even though it actually isn’t.

So Thornberg says we are swimming in a sea of money, while the IMF encourages central bankers to keep interest rates negative because we are going to run out of money soon.

We know a couple from our younger days who moved up to Yakima when they were priced out of the Bay Area. I hope they haven’t liberated any recent equity gains (an aspect of their Bay Area lifestyle that helped send them packing to Yakima).

But if you zoom out to the five-year trend, and then look at price per square foot, you will see that the trendline has been decreasing. Looking at the square-foot chart helps to remove at least one measure of variability. It would be better if the chart had upper/lower bounds on the datapoints to show deviation from the mean, but I think the five-year is visually good enough to show a decline.

:Veronica Ramos, who directs a migrant worker project for the Santa Clara County School District, was shocked at the rents when she relocated to the South Bay from Stockton. She moved in with her parents in Campbell. This week, she finally landed a studio apartment in Campbell for $1,800 a month, with a hefty deposit. ‘How do you afford a studio apartment and save money for a house?’ she asked.””

That’s easy, Veronica, just buy a house and rent out part of it to 6 or 8 of your migrant worker buddies.

I was just wondering why the Santa Clara county school district would have a migrant-worker program to begin with. They might as well just tell all the kids to stay home, since they are being replaced with migrants. Then tell the parents that they need to pay double taxes, since the migrant workers need A LOT of assistance, due to the fact that they don’t speak English, and are illiterate in their native tongues too.

‘Home buyers in and around Dublin, CA and throughout the Bay Area are snapping up homes in response to a hot housing market…Permits for condos and other multi-family housing are up 38% across the Bay Area, with San Francisco-Marin-San Mateo leading the way with an 82 percent jump over the first 10 months of 2013. “Everybody is at full velocity,” said marketing and sales expert Chris Foley of Polaris Pacific in an interview with Carey. “The condo market is very strong. No new condos have been delivered for five years and people want to buy condos.”

‘Not all community members are thrilled with some of the newly constructed home projects at locations such as Sorrento East that feature three-story single family homes packed in tightly with nearby neighbors. “I’d rather buy an older home that actually has some character and an actual yard. No way I’d pay this much for this ugly thing. But few people are willing to put any work into anything anymore and they want everything perfect at move in,” said one commentator as a reaction to a Sorrento East home that has been sitting on the market for over a month.’

‘Hong Kong, Vancouver and Honolulu have the least affordable housing markets across nine nations in the Demographia International Housing Affordability survey. The median home price in Hong Kong rose to 14.9 times gross annual median household income from 13.5 times last year. Homes in Vancouver cost 10.3 times income and 9.4 times in Honolulu. Australia and New Zealand were the most unaffordable countries after Hong Kong, with home prices at 5.5 times gross income.’

‘Honolulu was the least affordable in the U.S. Santa Barbara, Calif., was second (9.3 times gross annual median household income), and San Francisco (9.2) ranked third.’

‘Except for the U.S., no country had cities with more than 1 million people where the median home price was less than three times income, according to the report.’

It makes sense that Honolulu would be like that. It’s a world-class tourist destination. The rest of it makes no sense.

The only explanation is that more government intervention causes more chaos, not less. It would be better if China, Canada, Australia, and New Zealand could learn to form systems that allow a free market. If they did, then they could enjoy the luxury of living in homes that cost less than 3x income, even while living in thriving cities of over a million, with relatively low rates of unemployment.

The United States should definitely NOT try to be more like the rest of the world, no matter how much the world’s socialists try to make this case. Funny how the Federal Reserve is causing greater income inequality in other countries. You would think it would have a bigger impact right here. I guess those socialist/communist systems just tend to distribute money more unequally.

I suspect it has nothing to do with socialism but rather to do with credit and speculation. Speculation itself drains money from everyone and funnels it to the speculators. The Fed’s easy money policy has turned the banks into Pillsbury Dough Boys and everyone else into skinny donkeys paying double for food and housing and borrowing just to live day to day. This thing knows no borders.

Once again, more mixed data from different sources. Some sources tell us that inventory is going down or flat. Other sources tell us that inventory has been increasing for nearly a year now.

Some reports tell us that house prices are declining on a per-square-foot basis, other reports tell us that house prices are flat, and others say that they are rapidly increasing, at a pace never before seen by humanity, not even during the last bubble. Houses are grossly overpriced in some places, and only slightly overpriced in other places.

In the meanwhile, mortgage rates will certainly continue to increase throughout the Fed taper, which should cause prices to decrease. On the other hand, if lending standards are getting looser, and banks are still willing to give out adjustable-rate, pick-a-pay mortgages, then rates might not matter until the Piper comes for his pay, which won’t be for a few years. I would like to know why some news articles are gushing about all the new “easy” lending, while other news articles are still complaining about the miserly banks and their “unreasonably tight” standards.

I can’t tell if the news media are trying to play a “confidence game” with their readers, or if the market is faltering downward, or if the market is faltering upward.

I just read prices are up 20% in San Luis Obispo County, CA in Dec 2013.

“The San Luis Obispo County housing market ended 2013 with fewer homes sold in December than the previous year, but with median prices for those homes continuing to increase.

In December, the total number of homes sold countywide — including new homes, resale single-family homes and condos — was 292, down 12.8 percent from the same month in 2012, according to DataQuick of San Diego.

Despite the decrease in sales, the overall median home price increased 19.4 percent to $465,500 in December — the highest median price for that month since 2007.”

Thinking about my dream car - Mercedes Benz CLS63 AMG. But the truth is I do not drive that much. I don’t really feel a need to drive much. And on a weekend I drive even less. And in Southern California freeway traffic you look silly driving a high performance car that does not exercise its performance.

But there are tens of thousands of people who pay $50,000 and more for performance cars that take just about the same amount of time it takes me to get from their start to final destination on a weekday.

Then driving it in L.A. with bumpy freeways and bumpy streets is even a less pleasant thing to think about if I drive such a car.

My car might reach 77,000 miles on its odometer by the end of March. If it does, that’s an average of 7,000 miles per year I put on it.

The money I have left over by owning an older car and by renting goes into my dollar cost averaging in my investments.